7/01/2008 @ 7:30PM

Winemakers On The Rise

Thirty-five years ago David Bailly, a Minnesota lawyer and wine enthusiast, made a fascinating discovery: Some French wineries were peddling hybrid flavors containing Minnesota grapes.

That knowledge–and more gleaned from seasoned winemakers in the Loire Valley in France–was enough to encourage Bailly to plunk down $10,000 for a 20-acre plot in the Hiawatha Valley, on the outskirts of Minneapolis. If drinkable wines came from Minnesota grapes, he would be the one to grow them.

Bailly’s big challenge: protecting his precious vines from subzero winter temperatures. His answer, after significant trial and error, was to bury the vines under a foot of dirt; that way they could continue to grow horizontally in the winter and pop up unscathed in the spring. In 1978, Bailly bottled the first Minnesota wine, a Marechal Foch (a dry red), made with the state’s own grapes–a feat that later inspired the launch of 20 other local wineries.

Bailly has plenty of entrepreneurial company these days as the globe’s thirst for vino continues to grow. According to the Wine Institute, the U.S. consumed 716 million gallons (2.4 gallons per person) in 2006, up from 570 million gallons (2 per head) in 2000–a 26% increase. Meanwhile, consumption in Russia, Australia, the United Kingdom and China grew 40%, 26%, 17% and 9%, respectively, between 2000 and 2005 (the latest figures available).

While the wine industry is still dominated by a handful of global players (California, for example, yields 90% of all wine produced in the U.S.), aspiring vintners are aiming to grow grapes in ancient-but-underdeveloped regions, as well as in newer, unconventional locales wracked by inclement weather, such as Patagonia (near the South Pole) and Thailand (roasting perilously close the Equator).

This game takes serious courage. Even with overall demand climbing, many entrepreneurs will reap sour returns. The entry fee is stiff, too: While start-up costs vary dramatically with the region, wine experts say new vintners need at least $1 million to make a go of it.

The big expense, obviously, is land. Napa dirt, at the high end, goes for about $300,000 an acre; New York’s Finger Lakes region, by comparison, runs about one-thirtieth of that, estimates Chris Gerling, consultant to the New York State wine industry and an associate within Cornell University’s viticulture program.

Next comes all the equipment: crushers, de-leafers and fermentation barrels–not to mention cellars to store those barrels (for, say, five years until the stuff is ready to drink). That lag time makes it difficult for most entrepreneurs to secure traditional bank financing–yet another reason this game is for the deep-pocketed set.

“If you need to make money or make it soon, don’t start a winery,” says David King, co-owner of King Family Vineyards in Crozet, Va., started in 1999. “You need to be able to take a long-term view.” King’s not kidding: It took him nearly 10 years to turn a profit on the winery.

Adding to the bill is all the initial research and development (read: more trial and error) to arrive at a drinkable wine. “We imported 50 varieties of [grape vines] from all over the world just to try out what would work,” says Prayut Piangbunta, chief winemaker with Thailand’s Khao Yai Winery, the oldest winery in the country. Fearing the scorching temperatures near the Equator, “we weren’t sure if grapes could grow here at all.”

Trickier still, the Thai government is turning up the heat with stiffer tax rates on wine. According to Piangbunta, wineries keep just 32% of the price of every bottle sold within the country; the rest is tax revenue. (“We’re thinking of making exports our focus now,” he says.) Worse, the government has crimped marketing efforts by recently forbidding wineries from conducting tastings at their facilities.

Another new, against-all-odds wine region is Patagonia, Argentina. Northern Argentina has been long known for its tasty yet affordable wines, but Patagonia–near the South Pole–is truly a nascent grape grower. Though much of the area is buried in ice for part of the year, entrepreneurs have flocked south to try to tease fruit from the frigid soil–including seasoned winemakers like Countess Noemi Marone Cinzano of Italy and Danish winemaker Hans Vinding-Diers, founder of the Bodega Noemia de Patagonia vineyard.

Long a producer, Slovenia was short on quality when it came to wine. Most local winemakers were hobbyists, making batches in bathtubs or in their backyards. Under Communist rule, the government emphasized bulk production, not craftsmanship.

Now that’s starting to change. Two distinct regions–along the Mediterranean coast, where the air is warm and dry, and in the slightly cooler northeastern mountains–have strong potential. Miro Munda, a veteran producer in the northeastern town of Kog, says making wine is more profitable than growing many other crops, though the volatile weather can be challenging.

“We don’t have a roof over the vineyard, and we are doing our job under the sky,” he says. Some good news for Munda and his ilk: The Slovenian government recently began subsidizing international marketing for its winemakers.

Then there’s China, where scientists recently unearthed shards of wine containers dating from 9000 B.C. Until recently, though, much of the wine sold in China came from producers that bought grapes in bulk from local farmers–meaning that quality wasn’t exactly a priority. But change is afoot.

“China is the huge growth area,” says Tom Cannavan, author of Winepages.com, a blog that follows the industry. “It’s been planted faster than anywhere else in the world.” Private equity shops are planting seeds too. In January 2008, the Texas Pacific Group, a large U.S. investment firm, bought an undisclosed stake in the Yunnan Winery, located in the Yunnan province, for $14 million.

One caveat on Chinese wines: Oenophiles might want to wait a few years for the new batches to mature.